THE IMPACT OF INDUSTRIAL DOWNSTREAMING POLICY ON REGIONAL ECONOMIC GROWTH AND EMPLOYMENT ABSORPTION IN INDONESIA

Abstract

Indonesia's industrial downstreaming policy, anchored by the nickel ore export ban that took effect in January 2020, has reshaped the economies of the provinces that host smelters. This study examines whether the policy translated into faster regional economic growth and, more importantly, into proportional employment absorption. Using secondary data from Statistics Indonesia (BPS), the Ministry of Investment and Downstreaming, and the Ministry of Trade for 2018-2025, the study applies a descriptive-comparative quantitative design that combines a before-after growth differential, arc employment elasticity, and investment labour intensity. The results show that the gross regional domestic product (GRDP) of North Maluku grew by a cumulative 107.4% in 2019-2024 (an average of 15.7% per year), and Central Sulawesi grew by 65.9% (10.7% per year), compared with 18.0% (3.4% per year) nationally. Relative to their pre-policy trend, the two smelter provinces gained 10.5 and 5.7 percentage points of annual growth over the national economy. Iron and steel exports rose from USD 7.39 billion in 2019 to USD 27.97 billion in 2025, and downstreaming investment reached IDR 584.1 trillion in 2025, or 30.2% of national investment. Employment, however, responded weakly: the employment elasticity of North Maluku was 0.25, less than one third of the national elasticity of 0.80, and open unemployment fell by under one percentage point. The study concludes that downstreaming has produced high but capital-intensive growth, and it recommends local content and workforce programmes, linkage-building with local small and medium enterprises, and fiscal transfers that return more value to producing regions.